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Will we see India’s own Blockchain consortium?

With the central bank taking the lead, India may not need an independent consortium

With the Institute for Development and Research in Banking Technology (IDRBT), the nodal technology research centre set up by RBI announcing a successful trial of blockchain technology involving a number of Indian banks, the possibility of an Indian blockchain consortium seems more real.

Blockchain, the technology behind bitcoin that has been embraced by a number of financial institutions and central banks around the world to explore how it can improve the financial industry processes, has been hailed as the next generation financial architecture by experts. In August last year, the World Economic Forum, said blockchain would become the ‘beating heart’ of the global financial system. In a research report, the Davos-based think tank said Blockchain could ‘profoundly alter the way banks do business worldwide, lowering their operating costs and making financial services securer and more accessible.’

The IDRBT recently released a white paper, Applications of Blockchain Technology to Banking and Financial Sector in India, where it proposed a roadmap for adoption of Blockchain in banking and finance sector. From among several applications, it tried out a proof of concept center (PoC) for trade finance.

The IDRBT trial successfully demonstrated how blockchain can be used with the current payment protocols. The trial used the Immediate Payment Service (IMPS) protocol of National Payment Corporation of India (NPCI). The participants included, apart from IDRBT and NPCI, a number of commercial banks like State Bank of India, Punjab National Bank, HDFC, Citibank and Deutsche Bank. The technology platform was provided by MonetaGo, a New York-based software company providing blockchain solutions for commercial and central banks.

The network was developed using Monetago’s Enhanced Information Payments System and proprietary software toolkit on the open source Hyperledger Fabric platform.

While a few banks participated in the actual trial, for trade finance, the Blockchain Working Group initiated by IDRBT has a much larger participation, with representatives from banks, technology companies and other financial services firms. Apart from representatives from RBI, NPCI, the Clearing Corporation of India, Indian Banks Association, the working group has representatives from banks. Indian private banks like Axis Bank, HDFC Bank, and ICICI Bank; PSU banks like Bank of Baroda, Punjab National Bank, and State Bank of India; as well as foreign banks like Citibank and Deutsche Bank are part of the working group. Among technology companies, apart from MonetaGo, Infosys and TCS are also part of the working group. Both these companies are large players globally when it comes to core banking software. Other representatives include those from Deoitte and the Indian Statistical Institute in Kolkata.

This is the first time such a large group of Indian stakeholders have come together on a formal platform to collaborate on blockchain.

In the last two years, several such consortia have come up to collaborate on blockchain. The biggest and the oldest is R3 (R3CEV LLC), a New York-based company that leads a consortium of more than 70 large financial institutions started in 2014. Digital Asset Holding, which is another similar company, with investment from some big names like Goldman Sachs, ABN AMRO, JP Morgan and IBM, a strong challenger.

While some of the non-American, non-European players have been part of these groups, many regions in the world have seen their own regional consortia. In May last year, 31 Chinese firms launched Financial Blockchain Shenzhen Consortium. Among others, the consortium includes Chinese financial services firm Ping An Bank, which is a member of the R3 led consortium as well. In November, 42 banks in Japan started a blockchain consortium which was led by financial services group SBI. Last month, Korea saw its own consortium starting with 27 members, both from among financial services firms as well as fintech start-ups. Last month also saw Microsoft taking a lead to launch an ‘Asian’ blockchain consortium in Taiwan.

The technology players have sensed opportunity in the area and have been actively involved in these initiatives. While IBM is a founding member of Digital Asset Holding, Microsoft’s Taiwan consortium shows even the Redmond based tech co is now proactive on this area. Microsoft is pitching its Azure as a platform but most interestingly, IBM has found a new narrative, reviving the mainstream proposition as the right platform for blockchain.

Will something like this emerge in India? "Such a platform already exists in India,” says a senior executive of a PSU bank, “in form or NPCI and IDRBT.” NPCI is actually a not-for-profit Section 8 company, with commercial banks as members.

If that actually happens, the working group formed by IDRBT may well mature into a more formal group which means India may not see an independent consortium like in other Asian countries.

In June last year, RBI had announced that it was studying how blockchain can be used in India. The above mentioned project is part of that study.

India may develop a new model where the central bank is involved right from day one. The advantage of this model is that new regulatory issues, if any, can be studied simultaneously with commercial and technical viability of the technology.